INFORMED TECHNOLOGIES INDIA LTD, MUMBAI V. ITO WD 3(2)(1), MUMBAI

ITA 6989/MUM/2012

• Counselvise Citation: 698919914 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 16-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Assessee Lawyers: SURINDER MEHRA
• Keywords: Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, M UMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND DR.S.T.M.PAVALAN (JM) . . , . . . . , ./I.T.A. NO.6989/MUM/2012 ( ! ' # / ASSESSMENT YEAR :2007-08) M/S INFORMED TECHNOLOGIES INDIA LTD, NIRMAL, 20 TH FLOOR, NARIMAN POINT, MUMBAI-400021 / VS. INCOME TAX OFFICER, 3 ( 2 ) ( 1), AAYAKAR BHAVAN, MARINE LINES, M.K.ROAD, MUMBAI-400020 ( $% / APPELLANT) .. ( &'$% / RESPONDENT) $ ./ () ./ PAN/GIRNO.:AAACK1710C $% * / APPELLANT BY : SHRI SURINDER MEHRA &'$% + * /RESPONDENT BY : SHRI VIVEK BATRA , + - / DATE OF HEARING : 16.9.2014 ./#' + - /DATE OF PRONOUNCEMENT : 16 .9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 3.9.2012 PASSED BY LD CIT(A)-4, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2007-08. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETH ER THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE ORDER OF AO IN DETERM INING THE ANNUAL LETTING VALUE (ALV) BY INCLUDING NOTIONAL INTEREST ON INTEREST FR EE SECURITY DEPOSIT RECEIVED BY THE ASSESSEE. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE HAS LET OUT THE FLAT LOCATED AT MOUNT PLEA SANT ROAD, MALABAR HILL, MUMBAI-400006 TO M/S DEUTSCHE BANK FOR A MONTHLY RENT OF RS.20,830/-. THE ASSESSEE HAD TAKEN THE INTEREST FREE DEPOSIT OF RS. 1.00 CRORE FROM THE ABOVE SAID BANK. THE AO DETERMINED THE ALV OF THE PROPE RTY BY INCLUDING NOTIONAL I.T.A. NO.6989/MUM/2013 2 INTEREST ON THE INTEREST FREE DEPOSITS RECEIVED BY ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE SAME . AGGRIEVED, THE ASSESSEE HAS F ILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. AT THE TIME OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT AO HAD DETERMINED THE ALV IN IDENTICAL MANNER IN A SSESSMENT YEAR 2006-07 AND THE SAME HAS SINCE BEEN DEALT WITH BY THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN IN ITA NO.475/MUM/2010 BY ITS ORDER DATED 11.5.2011 . THE LD. AR ALSO FURNISHED THE COPY OF THE SAID ORDER. ON PERUSAL O F THE SAID ORDER, WE NOTICE THAT THE TRIBUNAL HAD REMITTED THE MATTER TO THE FI LE OF AO WITH THE FOLLOWING OBSERVATIONS: 2.3. WE HAVE PERUSED THE RELEVANT MATERIAL ON RECO RD AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DETE RMINATION OF ANNUAL VALUE OF THE PROPERTY OWNED BY THE ASSESSEE. THE AS SESSEE HAD LET OUT THE PROPERTY AT MONTHLY RENT OF RS.20,830/- TO DEUT SCHE BANK AG AND HAD ALSO TAKEN THE INTEREST FREE DEPOSIT OF RS.1CRORE . THE AUTHORITIES BELOW HAVE TREATED THE NOTIONAL INTEREST AT THE RATE OF 10% ON THE INTEREST FREE DEPOSIT AS PART OF THE ANNUAL VALUE OF THE PROPERTY . THE ANNUAL VALUE OF THE PROPERTY HAS BEEN DEFINED IN SECTION 23 AS THE SUM FOR WHICH THE PROPERTY MAY BE REASONABLY LET EXPECTED TO LET FROM YEAR TO YEAR AND IN CASE THE PROPERTY HAS ACTUALLY BEEN LET OUT AND THE RENT RECEIVED OR RECEIVABLE IS MORE THAN THE SUM FOR WHICH THE PROPE RTY MAY BE EXPECTED TO LET FROM YEAR TO YEAR, SUCH RENT RECEIV ED OR RECEIVABLE WILL BE ANNUAL VALUE OF THE PROPERTY. THE ISSUE IS WHETHER NOTIONAL INTEREST ON THE INTEREST-FREE DEPOSIT TAKEN BY THE ASSESSEE AS PART OF CONSIDERATION FOR LETTING OUT OF THE PROPERTY CAN B E TAKEN AS RENT RECEIVED OR RECEIVABLE, OR IT CAN BE TAKEN INTO ACC OUNT WHILE DETERMINING THE VALUE FOR WHICH THE PROPERTY MAY BE EFFECTED TO LET FROM YEAR TO YEAR UNDER CLAUSE (A) TO SECTION 23(1). THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J. K. INVESTORS (248 ITR 723), HAVE HELD THAT NOTIONAL INTEREST ON INTEREST-FREE DEPOSIT CANNOT BE TAKEN A S PART OF THE RENT RECEIVED OR RECEIVABLE U/S.23(1)(B). THE HONBLE BO MBAY HIGH COURT, HOWEVER, LEFT THE ISSUE OPEN AS TO WHETHER THE NOTI ONAL INTEREST ON INTEREST-FREE DEPOSIT CAN BE TAKEN INTO ACCOUNT WHI LE DETERMINING THE ANNUAL VALUE U/S.23(L)(A). THIS ASPECT HAS HOWEVER, BEEN RECENTLY CONSIDERED BY THE HON'BLE HIGH ,COURT OF DELHI IN T HE CASE OF CIT VS. MONI KUMAR SUBBA AND ANOTHER (SUPRA), IN WHICH IT HAS BEEN HELD THAT THE NOTIONAL INTEREST ON INTEREST-FREE DEPOSIT CANNOT BE TAKEN AS DETERMINATIVE FACTOR TO ARRIVE AT FARE RENT U/S 23( 1)(A).THE HONBLE HIGH COURT OF DELHI ALSO OBSERVED THAT INCASE - A.O. FIN DS THAT THE ASSESSEE HAD RECEIVED ABNORMALLY HIGH INTEREST-FREE DEPOSIT AND I.T.A. NO.6989/MUM/2013 3 BECAUSE OF THAT ANNUAL RENT IS LESS THAN THE RENT W HICH THE PROPERTY MIGHT FETCH, THE A.O. CAN MAKE INQUIRY IN THIS BEHALF TO FIND OUT THE POSSIBLE RENT WHICH THE PROPERTY MIGHT FETC H. IN THIS CASE, NO ENQUIRIES HAVE BEEN MADE BY THE A.O. REGARDING THE RENT, FOR WHICH SIMILAR PROPERTY CAN BE LET FROM YEAR TO YEAR. BOTH A.O. AND THE LD. CIT(A) HAVE TAKEN THE NOTIONAL INTEREST ON INTEREST -FREE DEPOSIT AS PART OF THE RENT RECEIVED OR RECEIVABLE. THIS CANNO T BE ALLOWED IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (SUPRA). HOWEVER, THE INTEREST-FREE DEPOS IT TAKEN OF RS.1 CRORE WAS DEFINITE VERY ABNORMALLY HIGH AND, THEREFORE, I N SUCH A CASE ENQUIRES ARE REQUIRED TO BE MADE TO FIND THE FARE RENT FOR WHICH THE PROPERTY MAY BE EXPECTED TO LET FROM YEAR YEAR. SUCH EXERCISE HA S NOT BEEN UNDERTAKEN BY THE A.O. WE ALSO MAKE CLEAR THAT THE PROPERTY HAD BEEN LET PROPERTY TO A FOREIGN BANK AN THEREFORE, T HE SAME IS NOT COVERED BY THE RENT CONTROL ACT. THEREFORE, THE AN NUAL VALUE OF THE PROPERTY CANNOT BE LIMITED TO STANDARD RENT AND HAS TO BE FARE RENT, FOR WHICH THE PROPERTY MAY BE LET FROM YEAR TO YEAR . WE, THEREFORE, SET ASIDE THE ORDER OF THE A.O. AND RESTORE THE CAS E TO THE FILE ( A.O. FOR PASSING A FRESH ORDER AFTER MAKING NECESSARY INQUIR IES AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE 5. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDI NATE BENCH IN THE EARLIER YEAR, WE ALSO SET ASIDE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER. HOWEVER, WE MAY POINT OUT THAT THE QUESTION OF DETERMINATION OF ALV, THE HONBLE JURISDICTIONAL HIGH COURT HAS RECENTLY RENDERED ITS DECISION DATED 08-08-2014 IN CIT VS. TIP TOP TYPOGRAPHY IN ITA NO.1213 OF 2011. HENCE, THE AO IS REQUIRED TO FOLLOW THE BINDING DECISION OF THE JURISDICTIONA L HIGH COURT CITED ABOVE WHILE ADJUDICATING THIS ISSUE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN C OURT ON 16TH SEPT, 2014 . ./#' , 0 1 2 16TH SEPT , 2014 / + 3 4 SD SD ( .... /DR.S.T.M.PAVALAN) ) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER , MUMBAI: 16TH SEPT ,2014. I.T.A. NO.6989/MUM/2013 4 . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. , C- ( ) / THE CIT(A)- CONCERNED 4. , C- / CIT CONCERNED 5. 6. DE 3 &-F! , F! ' , , / DR, ITAT, MUMBAI CONCERNED 3 G / GUARD FILE. H , / BY ORDER, TRUE COPY I ( (ASSTT. REGISTRAR) F! ' , , /ITAT, MUMBAI